Trevor Jennewine, The Motley Fool
5 min read
Nvidia (NASDAQ: NVDA) will announce second-quarter financial results at 5:00 p.m. ET on Aug. 26, and the entire stock market could rise or fall on the news. That’s partly because Nvidia accounts for 8% of the S&P 500 (SNPINDEX: ^GSPC), but also because investors see the chipmaker as a barometer of the artificial intelligence boom.
Wall Street is predominantly bullish ahead of the report. The consensus earnings estimate has been revised higher in the past month, and most analysts consider Nvidia deeply undervalued. The stock has a median 12-month target price of $300 per share. That implies 44% upside from the current share price of $208.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Here’s what investors should know.
Wall Street expects strong financial results from Nvidia
Nvidia reported encouraging first-quarter financial results. Revenue increased 85% to $81.6 billion, driven by relentless demand for data center compute and networking products, and non-GAAP net income increased 140% to $1.87 per diluted share. Management also provided strong guidance implying 95% revenue growth in the second quarter.
However, Wall Street has bigger expectations. The consensus estimate currently says Nvidia’s revenue will increase 97% to $92.1 billion and non-GAAP net income will increase 99% to $2.09 per diluted share. The stock will not necessarily rise if the company beats expectations, but it could drop sharply (alongside the broader stock market) if its financial results fall short of what analysts anticipate.
Nvidia dominates the AI infrastructure market
Nvidia dominates the artificial intelligence infrastructure market. Its graphics processing units (GPUs) are the most popular type of artificial intelligence accelerator, with 80% to 90% market share. Nvidia is also the largest networking business in the world, and the company is on pace to be the largest central processing unit (CPU) supplier this year.
To further quantify Nvidia’s dominance, consider these facts:
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George Lee at Goldman Sachs estimates Nvidia accounts for 75% of data center capital expenditures (capex) related to artificial intelligence compute. He also expects AI compute capex to hit $1 trillion in 2030. If Nvidia maintains its market share, that revenue stream could hit $750 billion by the end of the decade, implying 34% annual growth.
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Meera Pandit at JPMorgan Chase estimates that 26% of hyperscaler capex goes directly to Nvidia’s bottom line. She expects total capex spending (i.e., compute, power, and property) from the five largest hyperscalers to reach $1.1 trillion in 2027. So, those five companies could account for $260 million in net income next year if Nvidia maintains its market share.
